S.KAMAL HAYDER KAZMI,
Research Analyst, PAGE
Dec 17 - 23, 2012
World urea capacity will increase by 44 mt, to 226.1 mt in 2016. World urea supply is estimated at 195 mt in 2016, growing at a projected average annual rate of 4.4 per cent compared with 2011. Global demand for urea for all uses is forecasted at 176 mt in 2016, growing 2.4 per cent per annum compared with 2011.
AVERAGE RETAIL SALE PRICE OF UREA
FISCAL YEAR (UREA 46% N) 2001-02 394.0 2002-03 411.0 2003-04 420.0 2004-05 468.0 2005-06 509.0 2006-07 527.0 2007-08 581.0 2008-09 751.0 2009-10 799.0 2010-11 1035.0 2011-12 P 1705.0 Note: (Rs per bag of 50 Kgs/110lbs)
During the next five years, world urea markets will move from relatively tight to balanced conditions in 2012, to growing potential surpluses exceeding 8 to 10 per cent of total supply in 2015-2016.
Much of this increase reflects the massive capacity addition that is planned in India in 2015-16.
A slow growth scenario would suggest a potential surplus of 12 mt urea which would equate to 6 per cent of potential supply during 2016. Between 2011 and 2016, 60 new urea units are planned to come on stream, of which 18 will be located in China.
The global fertilizer consumption on yearly basis is projected to grow at an annual rate of 1.7 per cent, to reach 192.3 mt nutrients in 2016.
Increases in demand are projected for all three major nutrients, showing average annual growth rates of 1.3 per cent for N, 2.1 per cent for P, and 2.8 per cent for K. Total nutrient sales in the fertilizer and industrial sectors in 2016 are forecasted at 245 mt nutrients, representing a 9 per cent increase compared with 2011 and an average annual growth rate of 1.8 per cent.
Fertilizer is Pakistan's most important and expensive input in agricultural production. The contribution of balanced fertilizer use towards increased yield varies from 30 to 60 per cent in different crop production areas of the country. The domestic production of fertilizers from July- March, 2011-12 declined by 1.4 per cent when compared to the last year's production.
Despite the increased supply of urea, total consumption of fertilizer reduced by 4.9 per cent. Nitrogen consumption increased by 0.3 per cent while that of phosphate decreased by 22.3 per cent and potash by 36 per cent.
During the last five years in the country, fertilizer industry invested 2.3 billion dollars based on the government approved policy designed to encourage investment in the sector. However, unprecedented gas curtailment to fertilizer plants, in violation of existing supply contract of 12 months a year, has caused significant loss to the manufacturers during 2012.
The industry had suffered a production loss of over 2.7 million tons in 2012. The domestic fertilizer plants produced only 4.2 million tons of urea against a total production capacity of over 6.9 million tons per annum.
Decline in domestic production of urea also compelled the government to import huge quantity of urea to meet farmers' demand, in addition to meet the production loss government imported over 1.23 million tons of urea spending 566 million dollars and also paid over Rs 24 billion subsidy to keep the imported urea's prices at par with locally produced urea.
On the other hand, Pakistan can export over one million ton of urea to earn hundreds of millions of dollar every year if domestic fertilizer plants are provided with uninterrupted gas.
The country's overall urea production capacity is about 6.9 million tons annually, as against the demand of some 5.8 million tons, providing an opportunity to export some one million ton of urea annually. Despite all the pressing problems, domestic urea price is still Rs 1331 per bag below international urea price, which is six times larger than feed gas subsidy of Rs.216 per bag.
The current domestic urea price is Rs 1,659 per bag, including company price Rs 1,422 per bag and Rs 237 per bag GST and advanced tax, as against average international urea price of Rs 2,990 per bag inclusive of GST during 2012.
The encouragement of fertilizer industry by the government was meant to pass on benefit of domestic manufacturing to the farmer. This is evident from the fact that during 2012 domestic urea sold at dollars 311 per ton while it received gas at dollars 3.8 per MMBTU. In comparison Middle Eastern producers sold urea at dollars 470 per ton while paying approximately dollar 0.7 per MMBTU for gas.
Over the last five years, the farmers have received benefit of Rs 500 billion, of this Rs 140 billion was contributed by the government in form of feed gas subsidy and Rs 360 billion was contributed by the fertilizer manufactures by keeping urea prices significantly lower than the international prices.
It was estimated that SNGPL-based plants were facing the worst-ever crisis of their history as such gas curtailment was never witnessed before 2012.
Another reason for reduced fertilizer consumption was the effect of heavy and destructive rains in the Sindh province during the monsoon season last year, which adversely affected crop lands.
The sector despite making an investment of dollars 2.3 billion in last 4-5 years on new production capacity, making Pakistan world's 7th largest urea manufacturer country, is sitting on an idle urea capacity of over 2.5 million tons.
It was also estimated that if the same gas curtailment continues in next year, the SNGPL-based fertilizer plants may force to shut down permanently resulting in lay off of highly skilled manpower, increase in bad debts and huge burden on national exchequer, to import urea to meet the urea shortfall.
It is not just fertilizer plants that would face the burnt, the whole farmers' community as well as the government would be the ultimate losers if fertilizer plants with over 2 million tons of capacity were shutdown due to gas shortages. The government needs to support the industry to ensure low-cost local urea to farmers and in gas supply.